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HM Revenue and Customs (HMRC) has decided to restructure its IT outsourcing contract.

The move comes in response to HMRC's aim to cut its IT running costs by about 10 per cent by 2010-11.

The Aspire contract with Capgemini and other IT service suppliers was originally signed in 2003-04 and was due to run for 10 years. It will now be extended by a further three years to June 2017.

Commenting on the restructure, HMRC chief information officer Deepak Singh said: "The restructuring of the Aspire contract balances the need for HMRC to meet its commitments to cost reductions under the 2007 Comprehensive Spending Review without compromising our joint drive to become a world class IT function."

A spokesperson for HMRC told GC News that under the Comprehensive Spending Review the department had to reduce its annual operational costs by five per cent each year over the period 2007/08 to 2010/11. "We have plans to reduce our IT costs by about 10 per cent per annum, which will equate to a saving of about £100m per year by 2011," she added.

The original contract allows for an extension of up to eight years.

The move comes after criticisms of the contracting process. Aspire (Acquiring Strategic Partners for the Inland Revenue) was set up to replace the contracts Inland Revenue had with EDS and Accenture for IT services and the National Insurance Recording System (Nirs2) respectively.

When Inland Revenue and HM Customs and Excise merged in 2005, Aspire was re-competed. The newly formed department was concerned that potential bidders would see EDS as a rival they would struggle to beat. So, to encourage competition, HMRC decided to contribute towards bidders' costs.

The Public Accounts Committee attacked this move earlier this year, which resulted in HMRC paying Capgemini nearly £52m towards the cost of bidding for Aspire.

Speaking in June 2007, chair of the PAC Edward Leigh said: "There has been a very steep rise in HMRC's spending on IT services – the forecast figure is some £8.5bn over the 10 years of the contract compared with the original estimate of nearly £3bn."

HMRC will hope the new deal will help to erode some of the additional outlay.